ANNIVERSARY SURPRISES

This year, the Contract of the Century marks its 30th anniversary—on September 20, 1994, a historic agreement was signed at the Gulustan Palace between Azerbaijan and 11 international companies, including Amoco, BP, McDermott, UNOCAL, LukOIL, Statoil, and others. This contract initiated the development of the largest block of the Azeri-Chirag-Gunashli (ACG) fields in the Azerbaijani sector of the Caspian Sea. The agreement laid the groundwork for the large-scale advancement of Azerbaijan's oil and gas industry, representing a significant step towards enhancing the independence and economic stability of our country. This deal not only stimulated infrastructure development but also reinforced Azerbaijan's position as a key player in the global energy market. Every year on the anniversary of its conclusion, Azerbaijan’s oil workers celebrate their professional holiday.

The 30th anniversary of the Contract of the Century was celebrated under particularly solemn conditions—on September 19, 2023, the Armed Forces of Azerbaijan successfully conducted a one-day counter-terrorist operation in Garabagh. This operation fully restored the country's sovereignty over this territory, marking an important milestone in Azerbaijan's modern history.

On the first anniversary of this operation in Garabagh, President Ilham Aliyev established a new holiday—State Sovereignty Day—which will be celebrated annually on September 20 alongside Oil Workers' Day. Although both events are quite different in nature, they are united by a common theme: they highlight significant stages in the country's history. It is no coincidence that they are now permanently linked by one date, symbolizing the strengthening of both the economic and territorial integrity of Azerbaijan.

ACG Gas Deal

The anniversary of the Contract of the Century, it should be noted, was celebrated on a grand scale. The festivities took place in the same location where everything began back in 1994—in Gulustan Palace. Congratulations were extended to the oil workers, and a short film titled "Four Friends" was screened, produced at the behest of the State Oil Company of Azerbaijan (SOCAR), depicting the friendship and dedication of four oil workers who face trials and challenges together.

The highlight of the celebration was the signing of new agreements, including a significant document—Appendix II to the existing Production Sharing Agreement (PSA) for the ACG field block dated September 2017 (when project shareholders signed a new PSA effective until 2049). Thus, a new deal has been concluded, which facilitates the development of free natural gas reserves within this block. The document was signed by all current shareholders with unchanged shareholding.

Under the terms of this gas agreement, the ACG block outlines plans for exploration, appraisal, development, and production of free reserves of natural gas from deep gas reservoirs. This new document will remain in effect until 2049, just like the PSA itself. In this context, bp will serve as the project operator.

Deep gas reserves at ACG are estimated at 4 trillion cubic feet (approximately 112 billion cubic meters). To extract these free gas reserves from two priority reservoirs, BP Azerbaijan has already commenced drilling the first production well from the West Chirag platform. "First gas is anticipated in 2025. This well is crucial as it will allow for production evaluation, which is expected to inform future development plans. It has also been agreed that SOCAR will purchase all gas produced from this first well," BP stated.

Commenting on this document, SOCAR President Rovshan Najaf stressed that its signing on the anniversary of the "Contract of the Century," initiated by national leader Heydar Aliyev, represents a new strategic milestone for SOCAR. "Azerbaijan, as a dependable partner in global energy markets, continues its efforts to diversify its energy resources further. This project will not only bolster our partners' energy security but will also enhance Azerbaijan's position as a reliable energy supplier to Europe," he asserted.

Gordon Birrell, BP's Executive Vice President for Upstream and Operations, remarked that there is significant potential for developing free natural gas reserves in ACG. He speaks from experience as he has been closely involved in the project for four years while serving as BP's regional president for Azerbaijan, Georgia, and Türkiye.

"It is quite remarkable that on its 30th anniversary, the ACG block has embarked on a new path with a natural gas project alongside impressive oil achievements. The substantial changes in Azerbaijan over the past three decades are interconnected with ACG, which has transformed the country into one of the most vital energy suppliers globally. However, today's agreement is arguably just as crucial as the original agreement regarding ACG production sharing because it will further increase the economic value of this legendary field by allowing commercial gas exports for the first time in ACG's history and supporting Azerbaijan's ambitions to boost its energy supply to Europe," Birrell said.

Zsolt Hernádi, executive director of MOL Hungarian Oil and Gas, discussed ACG's significance for Hungary, noting that this block plays a crucial role in securing Central Europe's energy supply. "Production from these fields provides us with flexibility in supplying crude oil to our refineries in Slovakia and Croatia; thus, the entire region benefits from this partnership," Hernádi added.

This agreement represents an important advancement in developing Azerbaijan's gas potential. While significant investment will be required for this project, it will not be as costly as starting development from scratch. It is important to remember that essential infrastructure at the block is already established; hence, it involves creating additional infrastructure. The realization of this deep gas project will ensure growth in gas production within the country, promoting sustainable development of Azerbaijan's energy sector and stable gas supplies to international markets—ultimately strengthening its position in the global gas market.

Interestingly, Equinor also appears among the shareholders of this new agreement despite having sold its assets in Azerbaijan, including a stake in ACG and the Baku-Tbilisi-Ceyhan oil pipeline. The latter was acquired by SOCAR and ONGC, with closing expected by year-end. Therefore, it would not be surprising if Equinor remains involved in the ACG gas deal due to its specific interest in "blue fuel."

BP comes into play: relay race from Equinor

As it turns out, Norwegians have a knack for surprising people. One such surprise was the signing of a Memorandum of Understanding between SOCAR and BP concerning two offshore areas—the Garabagh oil field and the Ashrafi-Dan Ulduzu-Aipara structure within Azerbaijan’s sector of the Caspian Sea.

These projects were previously under Equinor’s purview.

In May 2018, SOCAR and Equinor signed a PSA for exploring and developing the Ashrafi-Dan Ulduzu-Aipara block along with a Risk Service Contract for developing the Garabagh field. They established an operating company on an equal basis to realize these projects. However, Equinor sold its 50 percent stake in these ventures to SOCAR in December 2023, with closure occurring in April this year.

The situation regarding Garabagh is quite clear: this field has been discovered with recoverable reserves estimated at over 21 million tonnes of oil and 13 billion cubic meters of gas; first oil production could commence as early as next year. Plans include drilling 12 wells (6 oil wells, 3 gas wells, and 3 water injection wells) at a water depth of 180 meters and constructing a platform for 20 wells. At peak production, more than 5,000 tonnes of oil and up to 4.5 million cubic meters of gas are anticipated daily.

At the Ashrafi-Dan Ulduzu-Aipara block, significant work remains ahead; thus, involving an energy giant like bp—with its experience and technological expertise—seems entirely appropriate. The British company is confident that its participation in exploring and developing these two offshore areas can expedite project implementation through potential synergies.

"By collaborating with SOCAR to identify development options for these blocks, we can consider scenarios that enable us to maximize our use of world-class infrastructure operating in this region. This synergy will give both projects access to BP's global expertise, technical and commercial knowledge, advanced technology, and financial resources. We believe in realizing this crucial business opportunity with SOCAR’s support," Birrell stated.

It is worth recalling that in 1997 SOCAR signed a contract with BP, Unocal, Itochu, and Delta HESS for developing the Ashrafi-Dan Ulduzu block structures; SOCAR held a 20 percent stake in this initiative. During exploration efforts at Ashrafi, small hydrocarbon reserves estimated at around 20-40 million tonnes were identified. However, this contract lost its legal validity on 7 March 2000 due to low oil prices rendering these reserves commercially unviable. Now bp has an opportunity to attempt again but on a larger scale; let us hope for success this time around.

Given how confidently regional management at this British company speaks about the memorandum—emphasizing it as a continuation of three decades of successful partnership with SOCAR—any doubts about future operations appear to be diminishing.

Meanwhile, both companies decided to broaden their joint operational scope and signed another Memorandum of Understanding regarding collaboration in oil and gas production aimed at enhancing energy supply security. Although titled as cooperation within the oil and gas sector, it turned out to be even more intriguing than that.

According to BP's details under this memorandum, both companies will jointly explore synergies in international hydrocarbon exploration and production along with various new investment opportunities. In other words, SOCAR and BP are expanding their horizons and preparing to explore projects outside Azerbaijan—potentially beyond even the Caspian basin.

Additionally, this document reflects both parties’ intentions to share their experiences and expertise "in evaluating opportunities to provide reliable and affordable energy supplies globally."

"SOCAR and BP have enjoyed three decades of successful collaboration in developing Azerbaijan's oil and gas resources; these accomplishments have played a significant role in reinforcing our country’s status as a reliable energy supplier both regionally and globally. Now is an opportune moment to seek new collaborative areas and open exciting partnership opportunities both within our region and internationally," remarks Gary Jones, bp's regional president for Azerbaijan, Georgia, and Türkiye—without going into further details.

MOL Goes Onshore

Another significant event was signing a Memorandum of Understanding between SOCAR and the Hungarian oil and gas company MOL on exploration, development, and production at the Shamakhi-Gobustan onshore oil and gas field. According to the document, both companies will work together to further increase hydrocarbon production in Azerbaijan.

Information regarding Shamakhi-Gobustan is scarce; however, MOL anticipates positive outcomes. "I look forward to additional exploration successes onshore Azerbaijan alongside ongoing developments at the offshore ACG block," Hernádi expressed.

MOL currently holds stakes in Azerbaijan’s ACG (9.57%) and Baku-Tbilisi-Ceyhan (8.9%) projects. The company is also enhancing cooperation with SOCAR regarding lubricating oil supply and enhanced oil recovery efforts; it is plausible that these activities could form a basis for collaboration on Shamakhi-Gobustan given MOL's extensive expertise in this area. MOL actively collaborates with scientific institutions and international partners to innovate new Enhanced Oil Recovery (EOR) technologies aimed at improving existing methods while developing novel approaches to increase hydrocarbon recovery.

Publicly available information indicates that one MOL field in Hungary successfully employed gas and chemical stimulation techniques to elevate its oil recovery factor from just a few percent up to 10-15%. This significantly extended field life while enhancing profitability.

Thus, thirty years after signing the Contract of the Century once again opens avenues for new projects and initiatives. Signing this memorandum serves as an important initial step that solidifies both parties' intentions while laying groundwork for future collaboration efforts. However, realizing these objectives necessitates advancing to subsequent stages—culminating in comprehensive contracts detailing conditions, responsibilities, duties among all parties involved alongside clear terms governing agreement implementations. In our case, the first steps have already been taken. Now it's time to wait for further developments…